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Wednesday, May 09, 2007

Gold Follows Oil On Fed Inaction

Reuters reports on the US dollar. "The dollar gained against the euro and yen on Wednesday after the Federal Reserve held benchmark U.S. interest rates steady and said its main worry is that inflation will fail to moderate."

"'The dollar is gaining across the board because the Fed made no recognition of the March slowdown in core inflation, the slowdown in payrolls, industrial production, and consumer spending,' said Ashraf Laidi, chief FX analyst at CMC Markets in New York. 'The fact that the Fed shrugged off these important factors is a signal to the market that the Fed will hold rates steady for the rest of the year.'"

"The euro was down 0.1 percent at $1.3525 after the decision while dollar/yen gained 0.1 percent at 120.09 yen."

"In a statement outlining its decision that hewed closely to its last announcement in late March, the Fed nodded to recent sluggish economic growth, but held to its view that the economy was likely to expand at a moderate pace in coming quarters. It also said: 'Core inflation remains somewhat elevated.'"

"Investor focus now shifts to rate decisions on Thursday from the Bank of England, which is seen raising rates to 5.5 percent, and the European Central Bank, which is likely to hold rates at 3.75 percent but signal a hike in June. Sterling was up 0.2 percent at $1.9934."

"A spate of soft U.S. economic data has helped push the dollar to record lows against the euro and 26-year lows against sterling. Michael Woolfolk, senior strategist at The Bank of New York, said the euro may test its lifetime high above $1.3680 and make a run at $1.3700 by the end of the week."

From MarketWatch. "Gold futures closed lower Wednesday, as crude-oil prices plunged, dragging metals prices down along with them. Before the Federal Reserve announced that it kept rates on hold as expected, gold for June delivery ended down $4.90 at $682.50 an ounce on the New York Mercantile Exchange."

"'Despite indications that waiting for the Fed to decide the fate of interest rates was going to at least hold gold near $685, the falling price of crude oil impacted the bullion market first,' said Jon Nadler, analyst at Kitco Bullion Dealers. 'Any post-Fed rebound may indeed be feeble at this point, as the market appears to be looking for renewed tests at lower levels,' Nadler said."

"'The latest Fed decision should have little or no impact on the secular bull market in gold past a few hours or days,' said Peter Grandich, editor of the Grandich Letter. 'There's no way the Fed can raise rates, especially after they noted the housing decline is still 'on-going.'"

"'This means little help for the terminally ill U.S. dollar, other than short-covering rallies and profit-taking,' Grandich said. 'Gold's ability to march towards $700, albeit slower than some expected, is a testament to the physical demand in the face of heighten central bank selling and bears trying to cap the market.'"

"In after-hours, electronic trading, gold futures fell $5.10 to $682.30 an ounce. After the Fed decision, the dollar edged higher against the euro."

"Also on Nymex Wednesday, July silver fell 13.0 cents, or 1%, to $13.470 an ounce, July platinum fell $3.70 to $1,339.50 an ounce, and June palladium fell $5.55 to $370.40 an ounce."